Iran Khodro expects to sign a commercial agreement with Mercedes Benz within the next six months, the CEO of the Middle East’s biggest carmaker said.

The two sides have already reached an agreement on production of commercial vehicles and passenger cars in Iran.

“The current letter of intent will get down to signing in the first half of the next (Iranian) year,” beginning on March 20, Iran Khodro Chief Executive Hashem Yekke-Zare said on Sunday, Press TV reported.

Mercedes-Benz is a subsidiary of German-based Daimler which has announced a swift return to Iran where the race among carmakers for a share of the country’s huge market is getting intense.

In January, the German carmaker said it had signed letters of intent with local partners Iran Khodro Diesel and Mammut Group to arrange a "comprehensive reentry" into the country.

The areas of cooperation include a joint venture for local production of Mercedes-Benz trucks and power-train components plus the establishment of a sales company for Mercedes-Benz trucks and components, it said.

Daimler also plans to return as a shareholder in the former engine joint venture Iranian Diesel Engine Manufacturing Co. (IDEM), based in Tabriz.

Leading carmakers are seeing a pent-up demand for cars in Iran, a country of more than 80 million people, which is emerging from years of sanctions.

Yekke-Zare said Iran Khodro was waiting for talks between another Iranian carmaker, Pars Khodro to conclude in order to begin negotiations with the French company.

Iran Khodro is also willing to cooperate with Japan’s Suzuki for production of Swift, Ciaz and Vitara cars, he added.

Furthermore, the Iranian company is in serious talks with an Italian company, Yekke-Zare said.

"If everything goes according to plan, we will get to the signing stage very soon and the deal will be at a level above the cooperation agreement with Peugeot."

The French carmaker said in January it had signed a binding contract worth €400 million with Iran Khodro to produce a range of cars in the country.

PSA Peugeot Citroën will begin by producing 200,000 cars a year in a 50:50 joint venture, producing the Peugeot 208, 2008, and 301 models, its Chief Executive Carlos Tavares said.